Target-Date Funds: Glide Paths, Fees and Retirement Risk

A target-date fund holds a mix of investments and changes that mix as a planned retirement year approaches. It can handle allocation and rebalancing for you, but the date in its name does not promise a particular balance or retirement income. Start with what the fund owns, how that changes, and what you pay.

What is a target-date fund?

Think of two separate decisions: the account that holds your money and the investments inside it. A target-date fund is an investment you might hold in a 401(k), IRA or brokerage account. It is not an account with its own contribution allowance. Our 401(k) versus IRA guide explains the account choice.

Many target-date funds own other funds covering stocks and bonds. Some workplace plans offer a collective investment trust, or CIT, instead of a mutual fund. The SEC's March 2025 target-date bulletin covers registered mutual funds and ETFs, not CITs. Ask your plan for the documents for the actual investment you hold.

How a glide path works: “to” versus “through” retirement

The glide path describes how the stock, bond and other investment weights change over time. Rebalancing keeps holdings aligned with the intended mix; the glide path changes that intended mix as the years pass.

A “to retirement” path

This approach reaches its most conservative planned allocation at the target year. That does not necessarily mean all cash, no stocks or an automatic payout.

A “through retirement” path

This approach continues adjusting the allocation after the target year and reaches its most conservative mix later. Read how many years later and what the final mix contains.

The Department of Labor's target-date fund guidance explains both approaches and the differences between providers. Two funds labeled 2055 can hold different stock percentages today, at retirement and afterward. Compare the actual allocation schedules rather than assuming one date or label determines the risk.

Target-date fund versus index fund: different questions

An index fund seeks to follow a particular market index. A target-date strategy determines how money is allocated across investments over time. A target-date fund can use index funds, actively managed funds or a combination. You do not necessarily have to choose between target-date investing and indexing.

A broad stock index fund can spread money among many companies while still leaving you entirely exposed to stocks. It does not automatically add bonds as you approach retirement. The SEC's index fund explanation also cautions that indexing carries market risk and that not every index fund costs less than every active fund.

Adding another fund changes your overall allocation

Here is a hypothetical snapshot, not the holdings of a named fund or a suggested allocation. Assume you have exactly two investments:

1. $60,000 in a target-date fund holding 90% stocks and 10% bonds. Your share of its holdings is $54,000 in stocks and $6,000 in bonds.
2. $40,000 in a stock index fund. Assume it is fully invested in stocks, adding $40,000 of stock exposure.

Together: $100,000 invested, with $94,000 in stocks and $6,000 in bonds — a 94/6 portfolio. The target-date fund itself is still 90/10, but your combined holdings are not. Its manager does not rebalance the separate index fund for you.

This arithmetic ignores price changes, fees and taxes. Adding more fund names has increased the stock weight here; it has not automatically produced a more balanced portfolio. Repeat the calculation using current balances and holdings across your accounts.

How to compare fees without counting them twice

For a mutual fund or ETF, read the current prospectus fee table for the exact share class available to you. The expense ratio expresses annual operating costs as a percentage of fund assets; those costs reduce the value left for investors.

Check the total before fee waivers and the net figure after them. Read the waiver terms, including its end date and whether expenses can be recouped. An acquired-fund-fees line represents underlying fund expenses. If those costs already appear in the total you are comparing, adding them again counts the same expense twice.

Also check separate plan, account or advice charges. The SEC's fund-fee bulletin explains what the prospectus table covers and what it can leave out. For a workplace CIT, request its own fee disclosure from the plan instead of assuming it uses the same prospectus format.

What changes with a do-it-yourself three-fund portfolio?

Consider another hypothetical $100,000 portfolio: $54,000 in a broad US stock fund, $36,000 in an international stock fund and $10,000 in a bond fund. That is 90% stocks and 10% bonds, matching the broad split of $100,000 held entirely in our hypothetical 90/10 target-date fund.

This comparison keeps the balance and stock/bond weights constant. It does not make the portfolios identical: regional weights, bond duration, credit quality and individual holdings can differ. Matching 90/10 alone does not establish equal returns or risk.

With the three-fund version, you choose the funds and weights, rebalance them and decide when to change the target mix. With a target-date fund, the manager handles those decisions within its stated strategy. Compare actual costs and that responsibility; neither approach is universally cheaper or better. The SEC's allocation and rebalancing overview explains why market moves can pull a portfolio away from its intended weights.

Can a target-date fund lose money near retirement?

Yes. Stock holdings can fall, and bonds are not a guarantee against losses. Bond funds face interest-rate and credit risk; even a fund owning US government bonds can lose market value. Read the SEC's bond-fund risk explanation before treating a larger bond allocation as equivalent to cash.

The target year does not guarantee that your savings will cover retirement spending. Consider the fund alongside your other investments, expected income and planned withdrawals.

Does the account affect taxes?

In a taxable brokerage account, a mutual fund can distribute taxable income even when you sell no shares. The IRS explains capital-gain distributions: gains realized inside the fund can be passed to shareholders. Reinvesting dividends does not by itself remove the reporting obligation.

IRS Publication 550 covers investment-income rules and explicitly separates investments held in IRAs and qualified retirement plans. Do not apply a taxable-account example directly to a 401(k) or IRA. Our Roth versus traditional IRA guide explains the account-level tax differences.

What to check before choosing one

• Get the current prospectus and shareholder report, or the applicable plan and CIT documents. Confirm the exact investment and share class.
• Write down the stock/bond mix now, at the target year and at the end of the glide path.
• Compare total costs, waiver conditions and charges outside the fund.
• Calculate your combined allocation, including investments outside this fund.
• Check whether the risk and planned withdrawals still fit if you retire earlier or later than expected.

The useful question is whether the fund's allocation, costs and ongoing management fit the retirement plan you actually have.